GST in India - FAQ

1.    What is GST?

• Goods and Service Tax
• It is the biggest indirect tax reform since 1947.
• Taxes such as excise duty, service, central sales tax, VAT, entry tax or octroi will all be included by the GST under a single umbrella.
• In the words of the Indian Finance Minister Arun Jaitley, the GST bill will lead to the economic integration of India.

     2.    What is the main function of GST?

• The main function of the GST is to transform India into a uniform market by breaking the current fiscal barrier between states. 
• Thus the GST will facilitate a uniform tax levied on goods and services across the country.
• Currently, the indirect tax system in India is complicated with overlapping taxes levied by the Centre and the State separately. 
• GST is seen as a game changer for the economy. But the impact of these tax reforms, will not be immediate. 

     3.    When will the GST be implemented? 

• The ambitious goods and services tax (GST) may be a reality soon.

     4.    What % will be the GST? 

• Mostly it will be 17-18 percent.

    5.    Why do we see a delay for the passage for the GST Bill?

• To pass GST, the government needs Parliament approval to the pending bill during the ongoing session. It is getting opposed in the Rajya Sabha. 

    6.    What is the impact on the Indian stock market if the GST will be implemented?  

• It will be a big sentiment booster for the markets. It has a positive impact on goods and services related companies and thus progressing on Indian GDP.
• According to Indian Finance Minister Arun Jaitley, the implementation of the GST could augment India’s GDP by 2 percent.
• Increased GDP will attract more foreign investments and which in turn would take the Indian economy up and thus stock markets will make new highs.
• According to market experts, the sectors to benefit the most would be logistics, E-commerce, automobile, and FMCG among others

 To learn and trade Option Delta Hedging, Please visit  https://BlissQuants.com/Bliss_Coaching 

Delta Neutral methodologies in Option Delta Hedging Technique

Let us first understand what a Delta hedging technique is.

It is an options strategy that aims to hedge the risk associated with price movements in the underlying asset by offsetting long and short positions. It is also referred to as short gamma or long gamma position in a synthetic hedging technique.

For example, a long call position must be delta hedged by shorting the underlying stock. This strategy is based on the change in premium i.e. change in the price of option caused by a change in the price of the underlying security. The change in premium for each basis-point change in the price of the underlying is the delta and the relationship between the two movements is the hedge ratio.

In a Delta hedging process, it is mandatory to manage delta Greeks by maintaining delta as neutral. There are various methods to keep delta neutral with a price change.

Let us take an example.

Say we have created a short gamma position of SBI.

The spot price is 300 INR.

We have bought one future

Two “At-the-money” call options @310/- are shorted at high Implied Volatility (IV). Here we want to get the benefit of Vega.

We have shorted IV at a very high price. Once the panic settles, IV will go down and we will square off the position to book Vega profit.

Now let us understand how to manage this position, till the panic resolves.

(Note: option pricing is calculated using the Black–Scholes model for Indian stock market.)

1.    Delta neutral by keeping 1% out manually 

Here we want to manage delta by keeping 1 % price movement out. i.e. in the above example, if the price moves up to 303, we will not calculate any delta. Once the price goes to 303.5, we will calculate delta neutral at 300.5 and whatever quantity we get, we will buy that amount of equity. Thus we make 300.5 delta neutral. However, the spot price is 303.5 at that time. So we call it 1% delta out. If the price goes to 304, we buy equity for price 301 to make 301 spot price delta neutral.

Same way if the price goes down to 297 from 300, we will not do anything. If it goes to 296.5, we will manage delta for spot price 299.5.

2.    Delta neutral by keeping 1% out by setting SL (stop loss)

This is similar to method 1. However, instead of observing and doing it manually, we set a stop loss once we create a position. We sell equity at every half rupee change if the price goes to or below 296.5 or buy equity at every half rupee change if the price goes to or above 303.5.

In this method, there is a risk of not being able to execute one or two stop losses if there are flashy movements in price. However, there are advantages. One can’t miss managing delta at all and one can manage the fear and greed which comes while using method 1.

3.    Delta neutral by keeping 1 % out with managing using a call –put option

This method is recommended only when gamma is comparatively high. In this method, if the price goes to 303.5, we calculate a 0.3 or 0.4 delta put option and short it to adjust the delta-neutral equity. Same way if the price goes below 296.5, a 0.3 or 0.4 delta call option can be shorted.

4.    Delta neutral by changing strike

If the market goes in one direction i.e. if it continuously goes down, try to short “At-the-money” option and square off the current one. In our example, square off the 310 Call and short 300 call option.

If the market goes up, square off 310 call and short 320 call option.

Thus delta-neutral will be managed automatically and you will remain mostly always on at-the-money option shorted.

5.    Run time Delta using equity with every price change

Every time price changes, manage delta. I.e. if the spot price is less than 200, make delta neutral at every 0.5 paise. If the spot price is between 200-700, manage delta at every 1 rupee. Beyond that, manage delta neutral at every 2 rupees.

In this method, one can gain the maximum benefit of the delta process. But the disadvantage is that it’s very difficult to manage positions of more than 3-4 scripts if the market movements are very high.

Happy Option trading and position managing! 

 To learn and trade Option Delta Hedging, Please visit  https://BlissQuants.com/Bliss_Coaching

Capital Market Trading elemental

When one thinks of the stock market, mostly one of these two thoughts come in mind; Warren Buffet or Speculation! If a person possesses knowledge of this field, he/she will be inclined to think about the Warren buffet philosophy. Most of the other folks think that it is a speculative world and if they’re lucky, they can make a fortune.

I too belonged to the second category of folks a few years ago. I used to believe that one can become wealthy by practicing the ‘art’ of speculative trading. I had an opportunity to step into the world of stock markets and started exploring the ‘how what and when’ of trading. I soon realized that the subject is a deep ocean of knowledge but practically lends itself to human emotions of panic, fear, and greed.

Cutting a long story short, here is a simple understanding of stock market trading.

Trading can be categorized into:

Speculative trading, Fundamental-based trading, and technical trading

Speculative trading involves trading in a financial instrument involving high risk, in expectation of significant returns. The motive is to take maximum advantage of the price fluctuations in the market. Speculators, therefore, trade-in securities which have highly volatile prices and are traded frequently. This type of trading was definitely not my cup of tea and led me to ponder on the other methods of playing the markets to ‘make some money’.

There are different philosophies/theories and each must be right for a certain set of people, of course, depending on their risk and return preferences.

It’s a known fact that fundamentals of a company should be the basis of its stock price and few, rather none can challenge ‘Buffetology’.  Warren Buffet strongly advocates investing in fundamentally strong companies and identified the right stocks using fundamental analysis. Fundamental analysis involves an analysis of the balance sheet of the target company and of many more other parameters like turnover of assets, profitability, quality of the management team, demand for their products/services, future resilience/ vulnerability, state of the world economy, trends, competition, innovations in that industry, etc.

Primarily, fundamental analysis helps define the target security and prediction of the price or value. This method can lead to having very complex criteria for buying and selling stocks. It’s usually the experienced and established market participants who use fundamental analysis techniques for trading. It is used to make long term investments in the market. There are high chances that human emotions like fear and greed play a big role while taking a decision of entry or exit of the stocks.

And then there is this whole different world of technical analysis.

Simply put, technical analysis is based on the philosophy that trends and patterns repeat and that the stock prices can be predicted, with a degree of accuracy, by analyzing the price patterns/trends.

Technical analysis today consists of several theories around the study of patterns/trends. There are many universities and institutes which offer courses/certifications on technical analysis. You will find several certified technical analysts employed in the industry and this skill is found to be useful for individual traders, fund managers, and investment bankers.

Technical analysis requires skills in mathematics, statistical analysis, and money management.

There primarily are two categories of technical analysis:

1. Chart theory - discretionary trading and

2. Trend following

The chart theory is based on price, volume, and indicators; - namely, support and resistance levels. It has a defined mechanism of price determination. Though it is designed to avoid getting sentiment and emotion in the equation, the nature (discretionary trading) of this business is such that often emotions may play a bigger role in buy/sell decisions than rationale and mathematics. Besides, the backtesting of this system is a fairly complex exercise and is often not required as pattern science is based on historical behavior. People with knowledge and passion for mathematics prefer trading this style.

The trend-following technique is purely based on price theory. Frequently, trend followers say the price is ‘GOD’.  The technique doesn’t involve any prediction of price. The trend following system can only be proven using historical data analysis; technically known as backtesting.

It gives a trader proven and consistence track record of how a stock behaves in a bullish, bearish and sideways market. The backtesting gives confidence as it shows how the stock has performed during major economic/political events in the economy, natural calamities, economic cycles, etc. The concept is really simple and is based on simple or exponential moving average or high-low price theory. 

The beauty of this trading method lies in the discipline it lends to trading. The trader has to just be disciplined, once the rules in the system are set up. The system rules are defined such that the scope of influence of human emotions driving trading decisions is largely eliminated. Investors who prefer simplicity and discipline will favor this technique for trading in the capital market.

Happy disciplined trading!

 To learn and trade Option Delta Hedging, Please visit  https://BlissQuants.com/Bliss_Coaching

BlissQuants Trading Philosophy

The term “trading” simply means “exchanging one item for another”. We usually understand this to be the exchanging of goods for money or in other words, buying something. It’s the same principle when we talk about trading in the financial market. Trading has two flip sides: One, trading is the most captivating business, if you have the right resources with the knowledge of underlying principles. Another one is trading can be a disaster if you trade with no or limited knowledge.

Now Connect the trade with shares-stocks dots, if the value of buying shares increases, then one make money by selling them again at a higher price. The beauty is that one can even make a profit by simply selling it at a high price and later buying it at a low price; if prices are going down. This is financial trading.

It is a profitable business only if you trade with enough knowledge and the right philosophy. However, sometimes, it defines as one of the most monotonous activity, as it demands a highly disciplined attitude, a great deal of patience and a thorough understanding of money management. No matter what it is in reality, the truth is that it attracts mankind for ages.

I am sure the following prominent quotes will make your trading philosophy more interesting on the globe.

• The stock market is a device for transferring money from the impatient to the patient. - Warren Buffett
• A trend is a trend is a trend.  - Richard Dennis
• The elements of good trading are (1) cutting losses, (2) cutting losses, and (3) cutting losses. - Ed Seykota
• If you can’t take a small loss, sooner or later you will take the mother of all losses. – Ed Seykota
• Money management is a true survival key. - Bill Dunn
• Everything flows. – Heraclitus
• Win or lose, everybody gets what they want out of the market. - Ed Seykota
• Measure what is measurable, and make measurable what is not so. -Galileo Galilei
• The market is never wrong - Jerry Parker
• Life is too dynamic to remain static. - John W. Henry
• If you want a guarantee, buy a toaster. - Clint Eastwood
• If you don’t risk anything, you risk even more. - Erica Jong
• No human investigation can be called real science if it cannot be demonstrated mathematically. - Leonardo da Vinci
• All through time, people have basically acted and reacted the same way in the market as a result of greed, fear, ignorance, and hope. That is why the numerical formations and patterns recur on a constant basis. - Jesse Livermore

Here are some quotes from beginners and experienced traders from BlissQuants.

• Loss is an integral part of stock market business, learn to take it. -Bharatbhai Shah
• You can earn tons of money; provided you work systematically! - Nimisha Bhagat
• The stock market is not a get-rich-quick scheme, have patience! - Rupak Shah
• Path to become wealthy remains the same, no matter what business you do - Learn, Apply and be patient! - Falguni Vahora
• Owning a stock position is like having children, don’t get involved with more than what you can handle. - Harshal Shah
• There is no single theory to get success in the stock market. You can have your own theory provided if you have survived both bullish and bearish market. -Samir Vahora
• The stock market is the easiest way to earn money and loose too; if you don’t pay attention. Read it again! - Swati Upadhyay
• If you work strategically and analyze continually, you can earn money -Heena Maloo